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In a statement released today, Mr Swan said the outcome was the result of a number of factors.

"This stronger than expected outcome is the result of a combination of various one-off factors and the effects of the Government’s economic stimulus which has contributed to stronger economic outcomes," he said.

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But he said there were still challenges ahead.

"The stronger than expected final budget outcome does not substantially diminish the fiscal challenge imposed on Australia by the global recession, which has resulted in the largest fall in budget revenues compared with its comparable budget year forecast since 1930-31."

The Treasurer said the lower spending was due to a number of one-off factors, including a reduction in payments of $138 million for the Newstart Allowance.

"This outcome reflects in part the success of our economic stimulus which has meant more Australians in jobs and fewer Australians collecting unemployment benefits than would otherwise be the case," he said in the statement.

Speaking after the release of the update this morning, Mr Swan said the revised deficit marked a small step forward for the nation’s economic fortunes.

"The numbers today do give us a tentative step forward since the most recent forecasts in the May budget of this year," he said.

"But of course the global recession meant we started a long way behind ... We still have this very substantial challenge on our hands caused by the global recession, which has big implications for our future revenue."

Mr Swan said "underlying weaknesses" remained and that stimulus spending remained an important tool in the Government's kit bag.

"Economic stimulus has been important during this period and remains important in the period ahead because we do know that business investment will still be weak," Mr Swan said. "And if business investment is weak that has ongoing implications for the payment of company tax and revenue."

The stronger budget outcome is also reflected in a significant improvement in the nation’s expected net debt position.

At the end of 2008-09, net debt was $16.1 billion, which is $11.5 billion better than expected at the time of the 2009-10 budget.

However, Mr Swan said Australia still had lower debt and lower deficits than other major advanced economies.

"The level of Government net debt at 1.3 per cent of GDP in 2008-09, is dramatically better than 59 per cent of GDP reported for the major advanced economies in 2008," he said.

"The Government is fully committed to its fiscal strategy to return the budget to surplus as the global economy recovers.

"This strategy will ensure Australia’s net debt remains lower than any of the major advanced economies."

Mr Swan warned the effects of the global recession would be felt in Australia for some time, with ongoing impacts on the budget and further rises in unemployment expected.